Are first-home buyers on strike?

Leith van Onselen

For a number of years, rumblings of discontent have grown louder among interest groups in support of first home buyers (FHBs).

One such group even went so far at to call for a home buyer's strike in 2011. There is no doubt that FHBs have deserted the market since 2009 with housing finance commitments running well below historical averages over an extended period.

And the release yesterday of December housing finance data returned FHB numbers to post-GFC lows. According to the ABS, the number of finance commitments to FHBs nationally slumped to just 6,557 in December 2012, which is the lowest recorded level since February 2011.

So is this trend and the recent figures indicative of a buyers strike?

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At the state level, the slump in FHB commitments has been driven by big falls in New South Wales and Queensland, where FHB grants on pre-existing dwellings were axed in October 2012. Victoria, where FHB grants on newly constructed dwelling were wound-back in July 2012, has also taken a big hit over the past six months.

Western Australia, where immigration is highest, remains a bright spot for first home buyers. So, we can't say that whatever it is that is holding back FHBs is a universal strike.

Focusing on New South Wales and Queensland only, the number of FHB finance commitments have literally crashed, with commitments in both states running 50 per cent-plus below the levels recorded just prior to when the FHB grants were extinguished in October.

In fact, the number of New South Wales FHB commitments in December was the lowest in 21 years, whereas in Queensland it was the lowest since January 2011, when the state was affected by severe flooding.

So what we can say is that FHB's seem especially sensitive to fiscal incentives. Mortgage demand temporarily surged in response to the 2008-09 FHB Boost in the wake of the GFC, the expiry of FHB stamp duty concessions at end-December 2011 in New South Wales, and the recent October 2012 expiry of the FHB grant on pre-existing dwellings in both states. On each occasion, FHB demand has fallen away sharply following the expiry of these schemes.

On average it has taken four to six months for such givebacks to run their course before first home buyer activity bottoms. More worrying is that activity has not typically rebounded very strongly, unless more incentives are put in place.

The current shift of the first home grant from existing dwellings to new homes is a more permanent change to the grant system than in the past and it may just be possible that FHBs return even more slowly this time around, stalling an already slow and overdue property price recovery.

Australian first home buyers do seem on strike to the extent that the decade-plus grant system that has been in place has completely warped expectations vis-a-vis buying a property.

Of course the removal of the grants was long overdue and made perfect economic sense. As Australia's mining boom winds down, building more houses is one way to create the new jobs that will be needed.

Such grants may also help offset the dreadful planning bottlenecks that are in place for fringe development and help ease the housing shortage issue that plagues Sydney. There is also the now widely accepted truth that all the grants really did was drive up prices for FHBs, not really their intended purpose.

But the real reason, I suspect, that FHBs are still scarce in the property market is not so much that they are on strike as it is that they are locked out. Even after 175 basis points in interest rate cuts, housing affordability in Australia remains terrible. Here is the most basic measure of housing affordability, the ratio of mortgage interest payments to disposable income over time:

We have barely made it back to 2003 levels when speculation was driving prices to undreamed highs. Even with rates at 3 per cent, repayments are much more onerous than when interest rate were at 17 per cent in 1989.

Expect political recriminations to fly over first home buyers being ‘locked-out’ of home ownership, as well as increased special pleading from the property industry demanding that taxpayer funds once again prop-up the market.

22 comments

- FHB brought forward their demand while the incentives were available. They're not on strike, they're just not so many of them out there.

- Despite the low interest rates, it's much harder to borrow from banks. I've just refinanced. I think I'm an excellent prospect for the bank, but the bureaucracy and duration involved is much, much greater than a few years ago. Banks are also much more strict about lending only 80% equity without LMI. Rates for LMI have gone through the roof, which means FHB needed to accumulate much more of a deposit before they can start

- Builders have not responded with lower cost designs. They've tried discounts, but don't seem to have done much to simplify and reduce the overall cost. What's on offer has much more included compared with even 10 years ago

Commenter

Magic Pudding

Location

Date and time

February 12, 2013, 12:47PM

some very good points there.

Commenter

chine

Location

Date and time

February 12, 2013, 2:39PM

Yes, well I won't be a slave to the ripped off system we have in our country. I took advantage of our currency and bought couple houses overseas for only $70k. After foreign exchange and overseas treal estate fee's I substitute the rest of my full time in come now. I can afford to work part time now just 3 days per week. I am only 31. If I had gone into property here, I would be working full time till retirement and paying overpriced interest.

Commenter

Branco

Location

Date and time

February 13, 2013, 6:26AM

Have first home buyers smartened up, and see through the spin? Looks like a resounding yes, with the Baby boomers the losers as they try and dump their over priced assets onto the next generation so they can retire.

Commenter

TheJoker1214324

Location

Date and time

February 12, 2013, 12:53PM

Jumping on the first rung of property ladder now would be ridiculous. Especially buying a new house which drops 10% as soon as you walk into it, regardless of the market. Try in 2016 when some value may have returned and in the meantime, use the money you would have lost buying now, on backpacking round the world. The bank's noose can wait a few more years.

Commenter

Mr Pod

Location

Brisbane

Date and time

February 12, 2013, 1:29PM

The housing market is dominated by conservative minded baby boomers holding property and developers and bankers devoid of innovation. They are trying to engage with a savvy Generation Y who have experienced a GFC and don't have any need to think about tomorrow. Demographers have been talking about the wealth transfer (or lack of it) for years now, the problem is no one from the baby boomers will take notice until it is too late.

Commenter

jj

Location

perth

Date and time

February 12, 2013, 1:55PM

I won't bother buying my first home until retirement age.

So many people spend a quarter of a century paying off a massive loan for a house that once fully amortized is soon sold because they feel lonely in such a large house when the kids have moved on.

There's no freedom in buying an apartment, as morons running the owners corporation/ body corporate dictate what you can and can't do within your own apartment. It's financially risky too, because many apartment buildings are poorly built or have careless occupiers later requiring expensive repairs.

In the meantime I'm raising my family in a modest apartment in a 'trendy' suburb by the beach. I grew up in a house in a boring suburb bereft of culture or convenience. We had many possessions, which I realise was junk we didn't need. We don't have a garden or yard to play, but as it's an 'unaffordable' area the parks nearby are safe and well-kept.

Commenter

World traveller

Location

Date and time

February 12, 2013, 2:03PM

You seem very sane. Why be a slave to the bank all your life. I agree with you 100%.

Commenter

Dodger

Location

Sydney

Date and time

February 12, 2013, 3:21PM

That all sounds great, but how do you cope with the prospect of having to potentially move at the end of every lease (every 6 or 12 months) if the owner decides to sell or move in? I think you actually have less control when you don't own your own property. The landlord is the master of your destiny really.